MetLife expects to build on earnings growth, efficiency gains after Q3 turnaround

November 5, 2020.
The MetLife building towers above Jules-Alexis Coutane’s statue of Mercury on top of Grand Central Terminal, March 8, 2015, in New York. (AP Photo/Mark Lennihan)

The MetLife building towers above Jules-Alexis Coutane’s statue of Mercury on top of Grand Central Terminal, March 8, 2015, in New York. (AP Photo/Mark Lennihan)

executives said they expect the carrier to show improved profitability following a third quarter in which it expanded its major U.S. and Asia businesses, grew sales and cut expenses.

In a conference call with analysts Thursday, MetLife President and CEO Michel Khalaf and other executives said the New York-based life insurer had moved past the turmoil produced by the COVID-19 outbreak, generating adjusted earnings 33% higher than they were in the comparable period of 2019. Despite an actuarial review that cut earnings on lowered interest rate assumptions, they said, the carrier is positioned for further earnings growth through 2020 and beyond.

The second-largest U.S. life insurer on Wednesday reported adjusted profits of $1.73 per share, a result that beat Wall Street expectations and marked a substantial rebound from the prior period.

The quarterly showing was “a testament to the kind of company that MetLife has become,” according to Khalaf. “We are simpler and more predictable.”

MetLife’s actuarial assumption review, which lowered the projected U.S. mean reversion interest rate to 2.75% from 3.75%, shaved $203 million off of its adjusted earnings for the period. Khalaf said the adjustment, made to reflect rate cuts stemming from the COVID-19 crisis, had only a “modest” impact on the insurer’s results.

Khalaf and MetLife Chief Financial Officer John McCallion credited volume growth, improved investment returns and stronger underwriting margins for the quarter’s progress, adding that MetLife’s strategic execution would carry the momentum into future quarters.

In accordance with the carrier’s Next Horizon strategy, Khalaf said, MetLife has put itself on track to further streamline operations and sustain top-line growth in the U.S. and abroad.

MetLife saw its direct expense ratio drop to 11.4% from 12.4% in the second quarter, which Khalaf said made the executive team “increasingly confident,” despite the pandemic-related surge in operating costs, that the carrier will meet its target of 12.3% for the full 2020 fiscal year. 

The carrier also experienced “very strong” earnings growth from its U.S. retirement and group benefits businesses, according to Khalaf. Asked by analysts whether MetLife can keep up the group benefits lines’ outperformance relative to the broader industry, Khalaf said the insurer has a “robust view” of continued top-line growth going forward.

New business in MetLife’s Asia market, where adjusted earnings grew 34% year over year, also looks to endure into the fourth quarter, according to executives. While face-to-face sales faced a predicted slump from sustained social-distancing measures, they said, improved digital sales outreach boosted business in the region.

Referencing MetLife’s $7.8 billion in cash and liquid assets, Khalaf said the insurer would press forward on share buybacks, dividends and synthetic growth opportunities.

“Despite the extreme disruption 2020 has presented, we are on track this year to deploy $4.3 billion of capital toward strategic [mergers and acquisitions], common stock dividends, and share repurchases,” he said.

Asked if large-scale acquisitions were in the cards for MetLife, the chief executive said the carrier doesn’t “see gaps” in its current business portfolio. It had acquired vision care company Versant Health in September through a $1.7 billion deal.

“Overall, MetLife delivered a strong quarter, bolstered by an increase in variable investment income and supported by the solid fundamentals” of its business units, said McCallion. “We are confident that the actions we are taking to be a simpler and more focused company will continue to create long-term sustainable value for our customers and shareholders.”